Matters of the HEART (Act) – Part One

If you are a non-citizen, long time resident of the United States, or you’re considering relinquishing your U.S. citizenship, then you should know that the IRS has rules that might affect you and your tax liability.  The 2008 Heroes Earnings Assistance and Relief Tax (HEART) Act contains numerous traps for the unwary – too many to be summarized in one blog. This blog will serve as an introduction to a series of blogs covering a number of issues in the HEART Act.


According to IRS rules (IRC Section 877A(g)(2)) the term “expatriate” means (1) any U.S. citizen who relinquishes his or her citizenship, or (2) any long-term resident of the United States who plans to leaves the United States (and thus ceases to be a lawful permanent resident). A list of significant issues confronting the expatriate under the HEART Act are:


  1. Estate planning has become even more complicated, with possible double transfer taxation, if you’re not careful;
  2. There could be taxes based on the value of illiquid assets (such as real estate), as well as deferred compensation (in say, a retirement plan). Both can be taxed even if you don’t own the assets or the deferred compensation is not fully vested.
  3. The tax on assets and/or deferred compensation may also be subject to foreign taxation that, under certain circumstances, will not offset the US taxation you have to pay under the HEART Act.


The HEART Act imposes numerous tax traps for the unwary expatriate. You might say, it’s heartless (sorry, we could not resist that one). If you plan to relinquish your US Citizenship, or have been a long-term resident in the United States and plan to leave and you want to eliminate or minimize the tax consequences under the Heart Act, then schedule your free consultation by calling (480) 888-7111 or submit a web request here.